In this issue:
- Significant changes for TSA’s PreCheck
- Second airports for Atlanta and Seattle?
- Momentum builds to dump air marshals
- Innovation in airport pricing
- Airport gates and competition
- News Notes
- Quotable Quotes
Significant Changes for TSA’s PreCheck
There is good news, bad news, and questionable news about TSA’s PreCheck program. The good news was the agency’s September announcement that it is ending “Managed Inclusion,” under which Behavior Detection Officers pulled non-members out of the regular waiting lines, judged them somehow to be trustworthy, and shifted them into the expedited PreCheck lanes, where they proceeded to slow everyone down, by taking off their shoes and coats and unpacking laptops, etc. from their bags. So like all other frequent-flying PreCheck members, I rejoiced at this news.
Until the next day, when TSA quietly announced that instead of Managed Inclusion, it will randomly inspect a certain number of regular passengers via canine sniffing, and shift those who pass into the PreCheck lanes. The reason is that since Managed Inclusion was abruptly terminated, the waiting lines for the regular lanes have grown noticeably longer, and TSA is under pressure to reduce them.
And that bring us to the questionable news. On Oct. 23rd, TSA issued an RFP that revives its 2013/2014 plan to contract with vetted private-sector companies to pre-screen prospective PreCheck members. This is the third time around for companies that have devoted considerable time and money to developing and testing big-data methods for pre-screening applicants likely to be approved for PreCheck by TSA. The RFP lays down revised requirements, which prohibit the use of religion, financial status, health records, constitutionally protected activity such as using social media, and other records reflecting socio-economic status.
For several years now, TSA has contracted with Morpho Detection to operate PreCheck recruitment locations at airports and other locations at or near DHS facilities (such as seaports). Those are often not very convenient to get to, and require the applicant to provide a full set of fingerprints. As a result, this program has signed up only about a million people in several years, far below what TSA would like to see.
The idea behind the new effort is to draw on creative new private-sector approaches-thousands of convenient locations, partnering with large employers and worksites, and fully online application. My sources tell me that during previous rounds in 2013-2014, companies developed and had TSA test pre-screening methods that they say could accomplish the objective of a criminal history background check without requiring a full set of fingerprints. In response to the new RFP, one source tells me that his company’s market analysis concludes that if obtaining 10 prints is required from all applicants, that would limit their market to perhaps a million people-compared with five or ten times that number if people could complete the whole application process online. He also says that a system based on obtaining 10 prints would be more costly, making it impossible to charge the same $85 membership fee that Morpho is charging, given the added costs of vastly more sign-up locations.
TSA Administrator Peter Neffenger gave a speech Oct. 20th at an Airports Council International-North America security conference. I’m told that he touted the forthcoming third-party pre-screening program as “transformational” for PreCheck, and said he hoped the much larger volumes involved could lead to the membership fee declining to $50 from the current $85. But if the companies are right that a 10-print requirement and the inability to offer fully online applications mean significantly higher costs, then Neffenger’s goals will not be met. Unless, that is, the companies can convince TSA that their non-fingerprint vetting is as effective as a process using fingerprints.
Second Airports Making Progress in Atlanta and Seattle
Both Atlanta and Seattle are among the few major metro areas served by a single airport (unlike Dallas, Houston, Los Angeles, Miami, New York, San Francisco, or Washington, DC). Both Atlanta and Seattle do have secondary airports whose directors see them as future locations for scheduled passenger service, to supplement the existing monopoly hub. And both of these secondary airports have struck deals with New York-based Propeller Airports to finance, build, and operate a passenger terminal-at Paulding Northwest Atlanta Airport and at Paine Field in Everett, WA.
The last six weeks have seen positive developments for both would-be commercial airports. In the case of Paulding, the draft Environmental Assessment (EA) was released on Oct. 21st-and found no significant environmental impacts that would block commercialization. There is still a comment period, and a public hearing is set for Dec. 1st. Delta Airlines still vociferously opposes any airport capacity additions other than at the existing hub that it dominates, and there are also a couple of lawsuits against the project. So this is hardly a done deal, despite the clean EA. Incidentally, we also now know that it is Allegiant, back in 2013, that had stated its interest in serving Paulding, with initial service planned to Orlando Sanford and possible service to other Florida destinations.
In Seattle, the big news was a long editorial in the Seattle Times, on Sunday, Sept. 20th. The headline sums up the message: “To Accommodate Region’s Growth, Paine Field Should Be Part of the Flight Plan.” The editors noted Sea-Tac’s recent ranking as America’s fastest-growing major airport, as Delta builds up an international hub and dominant carrier Alaska continues expanding service. They pointed out that it took 20 years to bring about Sea-Tac’s third runway, and that despite over $1.4 billion of near-term expansion projects, the airport could reach capacity in as little as six to 10 years.
Paine Field, they noted, is well-located in the northern suburbs of the metro area and has ample runway capacity, given its former status as a military base and the current location of a major Boeing assembly plant. The airport’s contract with Propeller calls for building a small terminal that could handle 23 flights per day, and it is once again Allegiant that has expressed interest in serving the secondary airport.
The editorial writers also reminded readers of a 2009 study commissioned by former Gov. Chris Gregoire, warning of a future airport capacity crunch in the region, and suggested that an updated version of the study would be in order.
Both Atlanta and Seattle would be well-served by having a secondary airport, especially one that offered good opportunities for new-entrant airlines. I hope FAA will continue to be supportive of these efforts to expand airport capacity in metro areas that need it.
Momentum Builds for Dumping Air Marshals
I have written critically about the TSA air marshals program from time to time, drawing on quantitative analyses by researchers such as Mark Stewart (University of Newcastle) and Jon Mueller (Ohio State University). Their analyses estimate potential effects of reinforced cockpit doors, armed pilots, secondary cockpit barriers, and sky marshals in terms of preventing terrorists from gaining control of an airliner’s cockpit. Leaving aside all the math, the bottom line is that the other three methods cost very little (mostly modest one-time costs) whereas air marshals have ongoing operating costs of nearly a billion dollars a year. They also impose a significant cost on airlines, by occupying two first-class seats on the flights they are assigned to.
What’s surprising (and refreshing) is that prominent members of Congress have begun speaking out in opposition to continuing this program. As former Sen. Tom Coburn (R, OK) stepped down in January, he said “It is unclear to what extent the [air marshal] program is reducing risk to aviation security.” More recently, Rep. John Duncan (R, TN), whose House Oversight Committee has been investigating air marshal problems and scandals (including some criminal activity), has said the program “is probably the least, or certainly one of the least, needed organizations in our entire federal government.” He told an oversight committee hearing last month that the program “has come to be a symbol of everything that’s wrong with the DHS, when 4,000 bored cops fly around the country first class, committing more crimes than they stop.” As reported in a Los Angeles Times story (Oct. 20th), he also called the air marshal program “ineffective” and “irrelevant.”
I’ve heard-but have not verified-that a number of European airlines do not have air marshals. If that’s true, their governments’ security officials may have reviewed assessments like those produced by Stewart and Mueller and agreed with their conclusions that there is very little bang for the buck in such programs. There are likely exceptions, for flights to and from countries where terrorists are quite active, but that is certainly not the case here.
As Congress continues to look for “pay-fors” to offset increased spending, as in the just-negotiated budget deal, axing TSA’s air marshals would be a good addition to the list.
As long-time readers know, I have long urged airports facing demand greater than capacity to charge market prices for the use of their runways. While some airlines vigorously dispute the potential consequences of such pricing, their trump card is usually a rhetorical wave of the hand that dismisses the idea as purely an academic construct, irrelevant to the real world because nobody is doing it. Everyone is supposedly following the standard ICAO strictures for weight-based landing fees.
Except they are not all doing that. Privatized U.K. airports have departed from that model to varying degrees. A friend put me in touch with an official at London Gatwick, from whom I obtained details about how this capacity-constrained airport charges for the use of its single runway. It’s a serious attempt to use incentives to get the maximum benefit out of its limited runway capacity.
The first thing to notice is that prices are charged for both landings and takeoffs. That makes sense if you are going to charge different prices at different times of day (which they do), because the demands for landings may occur at more-busy or less-busy times of day than demands for take-offs.
The second feature is that there is no use of aircraft weight in the pricing structure. While that is tough on smaller planes, it provides a strong incentive for airlines to up-gauge their equipment, so that each use of scarce runway capacity handles more passengers than it would with weight-based pricing.
Because U.K. airports operate under stringent noise regulation, however, the runway charges for any time period do vary considerably by the plane’s noise category. For example, summer landing charges during the “Base” times of day (5 AM to 7 PM) vary from £561 for a quieter Chapter 4 plane to a whopping £2,752 for a noisy Chapter 2 plane.
Since air travel in the U.K. has large seasonal variations, the charges are higher in summer than in winter. And at all times of year, charges during night hours (10:30PM to 5 AM) are as high or nearly as high as during peak periods, due to the greater negative impact of noise during those hours.
I’m told that elements of this kind of pricing are in use at London City and London Heathrow Airports, but have not had the time to look into their price schedules.
This kind of pricing would be far better than the convoluted “slot” system in use at capacity-constrained Kennedy, LaGuardia, and Newark Airports, a source of endless battles between incumbent carriers and would-be new entrants, fought out as FAA tries to make modest tweaks to what is ultimately a central-planning allocation system. Far better to let market pricing work at these airports. But we will probably have to wait until the Port Authority is radically reformed and those airports separately privatized before the airport operators have much incentive to switch to a market-pricing system.
A basic premise of the Airline Deregulation Act of 1978 was that with the federal government no longer deciding which airlines can fly where, competition by airlines would make these decisions, and passengers would benefit, since competition generally leads to lower prices.
But many airlines are all too happy to seek political deals to lock out competition when they can, and one such deal was the 2006 five-party agreement that led to repeal of the anti-competitive Wright Amendment. That law had been enacted by Congress in 1979, and enforced a pre-deregulation agreement requiring all airlines serving the Dallas/Fort Worth area to operate only from the new DFW International Airport. Because Southwest was founded after that agreement, it filed suit to remain at Love Field, and won. But the Wright Amendment restricted service from Love field to within Texas and a few bordering states.
In 2006, five key players reached an agreement to phase out Wright by 2014: American (dominant carrier at DFW), Southwest (dominant at Love), DFW Airport, and the cities of Dallas and Fort Worth. They asked Congress to enact the deal into law, which Congress did. But Southwest’s price for agreeing to the deal was a drastic reduction in gates at Love Field, which were cut from 32 to just 20 (by demolishing 12 of them). JetBlue and other new-entrant carriers opposed the deal because of that, to no avail.
Today, Southwest fully controls 16 of the 20 remaining gates. Two are leased from the airport by Virgin America (former American gates it had to divest to obtain Justice Department approval to merge with US Airways). The other two are leased to United, but have been subleased for years to Delta, which wants very much to retain them. But in September, Southwest agreed to pay United $120 million to sublease those gates through 2028, giving it 18 of the 20 gates. So Delta is suing the City of Dallas, owner of Love Field, arguing that since United has not been using the gates, the airport should convert them into common-use gates. And in June the City asked a federal court to settle the issue.
Meanwhile, the FAA is investigating the whole mess, under its mandate to promote competitive entry conditions at airports which receive federal AIP grants and have federal permission to levy Passenger Facility Charges (PFCs), both of which apply to Love Field. As Aviation Daily reported (Aug. 13th), “FAA said it is investigating whether Dallas is fulfilling the terms of its grant obligations to make the airport ‘available for public use . . . and without unjust discrimination.'”
Whatever the court and the FAA decide, the real problem is the anti-competitive five-party agreement, which Congress never should have enacted into law, sanctioning the deliberate destruction of airport capacity to entrench Southwest as the near-monopoly player at Love Field. As Aviation Week editorialized in 2014, the agreement “erects a huge roadblock to prospective competitors. Through all this, there has been one interested party that was never at the negotiating table-the flying public. Wouldn’t want those suckers in on the deal.” And it added, “How ironic that so many Texans-those supposed friends of freedom and champions of laissez-faire-would be mixed up in such shameless shackling of Adam Smith’s invisible hand.”
Spirit Plans 125 New Routes. Ultra-low-cost carrier Spirit Airlines in September announced that it plans to add 125 new markets over the next five years. CEO Ben Baldanza told investors that by the end of this year Spirit will be serving 185 markets, so the plan implies growth of 68%. He also said the airline can profitably serve any market that already has 200 passengers per day. This growth should be good news for many small and mid-size airports.
New Des Moines Terminal a PPP? Needing to replace its too-small, 67-year-old terminal, the Des Moines Airport Authority is looking into some kind of public-private partnership that might finance, build, and operate its replacement. KPMG is assisting the airport board in reviewing its options. In 2014 the airport served a record 2.3 million passengers. The project is estimated to cost $420 million.
Dispute Over Toronto Airport Tunnel. A dispute over late completion of the new 853-foot tunnel linking island-based Billy Bishop Airport to Toronto proper has led to competing claims. The tunnel was procured as a design-build-finance-operate-maintain PPP, with Johnson Controls as the tunnel operator. Ports Toronto is seeking compensation for the late completion, and the contractor is seeking payment for unanticipated costs, reports Public Works Financing‘s September issue.
Illinois Ghost Airport Still Struggling. Mid-America Airport was built in the late 1990s, with federal grant assistance, as an alternative to what was then TWA’s fortress hub in St, Louis, 25 miles to the west. It has struggled ever since to attract scheduled air service, especially with the large excess capacity left behind at STL after TWA’s demise. As of now, Mid-America’s only carrier is ultra-low-cost Allegiant, with flights to two Florida cities twice a week. Next month the airline will begin twice-a-week service to Las Vegas. But that is nowhere near enough to cover the airport’s annual costs; it lost nearly $13 million (including depreciation) in 2013; final figures for 2014 are not yet available.
Brazil Considers Selling Larger Airport Stakes. The financially troubled government of Brazil is considering further reductions in its share of ownership in five privatized airports: Belo Horizonte, Brasilia, Campinas, Rio de Janeiro, and Sao Paulo. After the privatizations that began in 2012, government agency Infraero retained a 49% stake in each. The current possibility is to reduce that to 25%, generating cash to pay down some of the government’s debt. Brazil’s bonds recently were downgraded to below investment grade.
Phoenix-Mesa Gateway Expanding Taxiways. Phoenix metro area’s secondary airport has embarked on a $5.4 million taxiway improvement project, aimed at reducing delays for planes getting to and from its parallel runways. The project is funded by revenue from the airport’s Passenger Facility Charge (PFC). Allegiant serves several dozen destinations from the airport, and Elite offers service to San Diego. Longer-term, the airport hopes to build another terminal on the east side of the airport, on 700 of its remaining 1,000 acres.
Bidders Preparing for Lyon and Nice Privatizations. The French government is close to beginning the privatization process for the Lyon and Nice Airports. Inspiratia Infrastructure reports that at least three consortia are forming to bid on one or both: Atlantia/EDF Invest, Industry Funds Management/Manchester Airport, and Vinci/CDC Infrastructure/Predica. The national government owns 60% of each, with 25% owned by local chambers of commerce and the local government in each case owning 15%. It is a portion of the national government’s stake that will be offered. Nominal valuations (for 100% of each airport) have been put at $845 million for Lyon and $1.8 billion for Nice.
Large FBO Firm Being Acquired. In what is viewed as a vote of confidence in the recovery of the business aviation market, U.K. firm BBA Aviation has agreed to pay $2.07 billion to acquire Landmark Aviation from Carlyle Group. BBA, which already owns first-ranked U.S. FBO provider Signature, will add third-place Landmark, assuming no antitrust objections. The acquisition will be funded by BBA issuing new debt and shares.
House Bill Would Beef Up Airport Employee Screening. On October 6th the House passed by voice vote a bill that requires TSA to develop an employee screening model to ensure that only authorized individuals have access to secure areas of airports. It requires TSA to study the cost and feasibility of beefing up all access points with either biometric or card-and-PIN technology, plus surveillance video. The GAO would review the results and give its assessment to Congress. The bill’s author is Rep. John Katko (R, NY).
ACI-CANSO Airport Noise Guidance. Airports Council International and the Civil Air Navigation Services Organization have released “Managing the Impacts of Aviation Noise,” as a guidance document for airports and air navigation service providers. Among those contributing expertise were Airservices Australia, Boeing, UK NATS, ACI World, and noise consultant HMMH. The document is available from: www.canso.org/managing-impacts-aviation-noise.
TSA Loses Legal Battle Over Body Scanners. The U.S. Court of Appeals for the DC Circuit has ordered TSA to finalize within 30 days a long-delayed rulemaking procedure for its use of body scanners at airport checkpoints. The suit was bought by a DC-based think tank, Competitive Enterprise Institute. In its suit, filed in July, CEI argued that TSA had flouted the long-established rulemaking process, required by the Administrative Procedures Act, by installing and operating body scanners for eight years without a formal notice and comment period.
Correction re Spanish Ghost Airport. Long-time newsletter reader David Bentley called to my attention that Spain’s Ciudad Real Airport had attracted a small amount of scheduled service prior to its bankruptcy sale reported last issue. Air Berlin, Air Nostrum, Ryanair, and Vueling had each tried serving the airport. It was located in a low-population area because of proximity to a motorway and to a stop on the Madrid-Seville high speed rail line.
“The ICAO pricing guidelines’ focus on cost-reflective prices threaten an airport’s ability to set economically efficient prices and could stifle any innovations in airport pricing. The overriding message of the ICAO pricing guidelines is that users should pay their full and fair share of the cost of the services the airport provides to them every single time. There is no discussion of whether prices should reflect the benefits brought to other parties. Consequently, the guidelines read more like a set of accountancy rules rather than guidance on how to achieve the best economic outcomes.”
-Andrew Charlton, “Why ICAO’s Pricing Guidelines Should Be Ignored,” Aviation Advocacy Blog, Sept. 21, 2015
“Airports expand. They get bigger, particularly in South Florida. You know that when you move in. If you didn’t, you should have. Airports have noise; such is life. One resident of Lauderdale Isles said, ‘It’s like a conga line of noisy planes. We can hear it in our homes, and it has impacted our enjoyment of our gardens and yards.’ Wait. You didn’t expect that when you moved in not far from an airport? Airport honchos are planning a new noise study starting next year. I can tell you what it will reveal: people who live near airports will hear noise, no matter how flight patterns are changed, etc. Until the noise study is complete, residents basically have to live with the noise. But it shouldn’t be any surprise.”
-Gary Stein, Editorial Writer, “Hey, if you live by an airport . . .” South Florida Sun-Sentinel, Oct. 3, 2015
“Flouting the [Administrative Procedures Act] for eight years-despite repeated public requests to conduct notice-and-comment rulemaking and four years after this court ordered the agency to do just that-is unreasonable and unlawful. TSA’s chronic failure to timely comply with this Court’s mandate evinces crippling bureaucratic inefficiency, especially for an agency with over 50,000 full-time equivalent employees.”
-Marc Scribner, excerpt from CEI’s brief to the U.S. Court of Appeals, DC Circuit, quoted in Keith Laing, “Court Orders TSA to Finalize Rule on Full-Body Scanners,” The Hill, Oct. 23, 2015